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FMS Wertmanagement off to a successful start

Munich, 24 May 2011

FMS Wertmanagement, the institution tasked with winding up the assets of the HRE Group, has secured its ability to act only a few months after its founding on 8 July 2010. Its activities during the start-up phase were focused on recruiting personnel. The search for highly qualified and motivated employees for the challenging task of managing the portfolio of non-strategic operations and non-performing loans was very successful. FMS Wertmanagement also succeeded in implementing its funding strategy at a very rapid pace. By year’s end the loans from the European Central Bank (ECB) had already been reduced from a high of EUR 105 billion to EUR 93 billion. The liquidity guarantees of the German Financial Market Stabilisation Fund (SoFFin) were brought down from originally EUR 124 billion to only EUR 15 million by the end of the year. The remaining guarantee was replaced by FMS Wertmanagement’s own issues in March 2011 and thus earlier than planned. FMS Wertmanagement intends to float its first benchmark issue on the capital market in the next few days. Institutional investors have shown great interest in this key funding vehicle. The net interest income of EUR 146 million for the three months of the short financial year reflects the successful implementation of this funding strategy. Net commission income was negative at EUR -86 million, primarily due to commission expenses arising from SoFFin’s guarantee fees under Section 6 of the German Law Establishing a Financial Market Stabilisation Fund (FMStG) and premium payments for derivatives used in hedging transactions. Administrative costs were EUR 129 million. They include payments to external consultants who filled the gaps until FMS Wertmanagement hired permanent employees. As at 31 December 2010 the total assets of FMS Wertmanagement were EUR 358 billion.

This amount exceeds the value of the transferred portfolio by far, in particular due to the purchase of EUR 116 billion in own debt instruments for the purpose of obtaining funds from Deutsche Bundesbank. This enabled FMS Wertmanagement to repay in full the SoFFin-backed funds. Allowing for collateral provided, additional cash reserves and other components that must be capitalised under the German Commercial Code (HGB), the economic value of the total assets of FMS Wertmanagement is EUR 185 billion.

In the first few months one of the main tasks of the staff of FMS Wertmanagement was to sort, analyse and manage the more than 12,500 individual items of the transferred portfolio. It consists of five segments and associated derivative positions:

  • the Commercial Real Estate segment with a share of 11 percent;
  • the Workout segment, which includes non-performing loans where payments have already been delayed or missed or where legal steps have been initiated, with a share of 4 percent;
  • the Infrastructure segment with a share of 10 percent;
  • the Structured Products segment with a share of 25 percent; and
  • the Public Sector segment with a share of 50 percent.

SoFFin had allocated EUR 3.87 billion in capital to FMS Wertmanagement in connection with the portfolio’s transfer in order to compensate anticipated losses. FMS Wertmanagement recognised EUR 2.97 billion in risk provisions for the 2010 financial year. Of this amount, EUR 1.84 billion concern specific and global valuation allowances as well as additions to loan loss provisions. Write-downs on securities totalled EUR 1.13 billion. The additions of EUR 759 million to global valuation allowances include EUR 103 million in country risk provisions. The need for additional risk provisions arose from changes in the marketplace and the projected development of individual assets. They also take account of the special circumstances of a winding-up institution. A portion of the risk provisions was required to cover risks from the application of different accounting standards. Whilst the HRE Group applies the International Financial Reporting Standards (IFRS), FMS Wertmanagement is required to report carrying amounts pursuant to the German Commercial Code. The new risk provisions are the main reason why FMS Wertmanagement posted a net loss of EUR 3.04 billion for the short financial year before loss absorption. The amount of the risk provisions is consistent with the loss expected by FMSA at the time of the portfolio spin-off for the ten-year winding-up period. Hence the risk provisions serve to cover potential valuation adjustments but do not entail corresponding cash outflows.

icon pdf Annual Report 2010 (1.56 MB) (1.56 MB)

If you have any questions, please do not hesitate to contact Andreas Henry, Head of Communications, at +49 89 954 7627 250 or by email at This email address is being protected from spambots. You need JavaScript enabled to view it..